Cash-rich OMG looks cheap

OMG's share price has been rangebound for the past year, with progress capped by heavy spending on its wearable camera device. But a decision to ditch the hardwear and instead begin licensing its know-how to big consumer electronics firms has been well-received. The shares have soared by 15% to a 14-month high and prospects across the company's other three businesses look exciting.

Since making the world's first wearable camera, OMG has spent millions on developing the product, but consumer traction outside core enthusiastic users has failed to justify the cost. Ending marketing campaigns will slash annual spend at the OMG Life division from £4 million to just £0.9 million. It made an adjusted loss of £4.3 million in the year to 30 September, but house broker N+1 Singer reckons the unit will break even in 2016.

Overall, OMG grew group revenue by almost 14% in the 12 months to £31.2 million. Adjusted pre-tax profit fell from £2 million to £1.3 million, but strip out the Life unit and profit grew by a third to £5.7 million. Net cash was steady at £7.6 million.

Its biggest profit generator remains the Vicon business, which makes motion capture machines for the big Hollywood filmmakers. They've been used on hits like Planet of the Apes, Angelina Jolie's Maleficent, the new Paddington movie and upcoming Star Wars: Episode VII - The Force Awakens. But carmakers like BMW and the makers of Call of Duty computer games like them, too. Both sales of £17.2 million and profit of £5 million were flat year-on-year, but this is a reliable profit centre. For growth, OMG has Yotta and 2d3.

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Both divisions swung to profit during the period, and Yotta should benefit from the government's promise to invest billions on the UK's road network. The business puts cameras on vans and drives around looking for cracks and potholes, helping the Highways Agency decide where best to target repairs. Profit here doubled last year to £1.5 million.

Finally, the 2d3 unit works mostly for the US defence industry, storing video data from drones and manned planes. It then enhances images, removes cloud haze and improves the resolution of images, which can help with special operations. It booked the single largest order in OMG's history this year, a $5.7 million deal with the US Air Force. It will be used on Boeing's P8 surveillance programme, too.

This spread of businesses certainly de-risks exposure to any one market place. N+1 Singer expects profit will triple to £3.9 million in the year to September 2015 then jump another 50% the year after.

At 30p, OMG shares trade on 12.5 times forward earnings, dropping to just 7 for 2016. But N+1 estimates year-end net cash of £10 million, almost a third of the company's £33 million valuation, rising to £14.8 million the following year. Strip that out and the shares trade on a measly 8.8 times 2015 EPS estimates and just 4 times forecasts for 2016.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.